Taxing Definitions

Definition — Home Away From Home

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In a recently released report, the Treasury Inspector General for Tax Administration determined that some IRS executives incorrectly classified reimbursable taxable travel expenses as nontaxable.

Image source: Treasury Inspector General for Tax Administration
Image source: Treasury Inspector General for Tax Administration
(Click on image for larger view)

The rules that tripped up the IRS employees involve the difference between the definition of long-term travel away from home, which is taxable, and temporary travel away from home, which is not taxable.

For purposes of these rules, your “home” means the vicinity of your principal place of business, or where you regularly live if you have no principal place of business. If you do not fit into either category, your home is wherever you work, and none of your travel expenses are deductible because you are never “away from home.”

“Temporary” means travel that lasts one year or less.

Given those requirements, and the flowchart above (which you can click on for a larger version), can you determine the correct tax treatment in the following three scenarios?

1. After the first three months of the current calendar year, Employee A is asked to perform a temporary assignment at New Carrollton, Maryland, for two months. Employee A performs the two-month assignment while in overnight travel status, returning to her residence in Atlanta, Georgia, on weekends. Will the reimbursements received be or income?

2. The facts are the same as in #1, except that following the two-month assignment, Employee B continued going to New Carrollton to and from her residence and expects to continue this pattern for an undefined period. Will the reimbursements received be or income?

3. Employee C lives in Cincinnati, Ohio, and regularly travels to Miami, Florida, for eight months each year and the other four months travels to Dallas, Texas. Will the reimbursements received be or income?

For more information on the rules, read these memos from the IRS Office of Chief Counsel: 2011-0033, 200018052, 200020055, 200026025, and IRS Publication 463.

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Sorry, wrong answer :(
Right answer! Based on the facts, the reimbursement received for the two-month temporary assignment will not be taxable income because Employee A’s tax home is still Atlanta for the current calendar year.
Right answer! Here, when the employee agrees to continue to work in New Carrollton, there is a realistic expectation that the employment in a single location will last for more than one year. The employee is no longer temporarily away from home, and the travel expense reimbursements are taxable at the point the expectation changes.
Sorry, wrong answer :(
Right answer! Miami is the employee’s main place of work because she spends most of her time there and earns most of her income there; thus, the travel reimbursements for the Miami location are taxable.
Sorry, wrong answer :(
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